Friday, June 4, 2010

Do All 222 of These Economists Think the Multiplier for Changes in Government Spending is Negative?

John Boehner uses Twitter to claim that economists think reductions in government spending will lead to an economic recovery. He has cited this letter signed by 222 economists as the basis for his absurd claim. Let’s just say this is an opportunity for each of the 222 economists to either distance himself from Congressman Boehner’s absurd remark or to explain why they think the multiplier is negative.

Well, this is the sort of thing that gets attention for sure. How did the Republicans manage to do this? It is really hard to believe that this list of people actually signed in support of those statements.

I'm not surprised that economists would sign on to the Republican (at lately the Democrat) economic platform of the past 30 years. It's not like there has been a shortage of economists to support this platform before.

No more "stimulus" spending. Free trade, tax cuts, eliminate regulation and all will be fine. Heck, the letter says that they only want to "control spending growth!" So no need for ugly discussions about cuts. (Say, eliminating all research grants to university professors! Or eliminating pell grants altogether!). Cuts is the idea introduced by Boehner.

As the Sandwichman might point out, all of these economists are currently employed or retired. They could handle much higher unemployment rates than other sectors. Multiplier? More than made up by the stimulative effect of more tax cuts. Or so we have been told by experts for 30 years, many of whom labor as economists. (Heck, Art Laffer even signed the letter).

The only thing that is being cut in the letter is "stimulus", which isn't a very specific program. "Stimulus" is like "pork" and "waste." It might be difficult to identify when it comes time to do the actual work of budgeting. Heck, it's even in quotes in the letter. It's either a technical term or slang. Or a word that no one believes means anything.

"Recently a group of economists affiliated with the Cato Institute ran an ad in the New York Times opposing the Obama's stimulus plan. As chair of my department I tried to arrange a public debate between one of the signatories and a proponent of fiscal stimulus -- thinking that would be a timely and lively session. But the signatory, a fully accredited university macroeconomist, declined the opportunity for public defense of his position on the grounds that "all I know on this issue I got from Greg Mankiw's blog -- I really am not equipped to debate this with anyone."

Many assumed he must have been joking. Clearly he wasn't.Also some (eg Kocherlakota) who signed these letters tried to wiggle their way out by 'clarifying' their stance once it became clear that the multiplier was positive and significant.

What Is really funny is that the minute the Republicans get back into power they are going to forget all about this and cheerfully increase government spending to stimulate the economy like they always have when in power. This is just a ploy to fool the Democrats into not increasing stimulus spending enough to lower the unemployment rate before November. And it seems to be working.

What is really funny is seeing Arthur Laffer's name on this list. Oh, of course. I forgot. Tax cuts stimulate, and from the supply side, with it big enough to produce enough tax revenues to offset those lost to the lower tax rates. It is only government spending increases that do not stimulate the macroeconomy. How silly of me.

Unfortunately there is nothing really funny about a large group of professional people signing onto an idea that is unaccompanied by any substantive demosntration of validity. Economics is a field of study closely tied to financial centers of power. So closely tied that mant practitioners of the art have come to recognize the value of sycophancy. One need not be paid to produce ideas when one can be paid simply for accepting an idea that has no demonstrable validity, but can be argued in an intelligent fashion.